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Any profit or gain that arises from the sale of shares are treated as Capital gains under Income Tax Act. Capital gains are further classified as short term or long term based on their holding period. Gains from equity shares listed on a recognised stock exchange having a holding period of less than 12 months are considered as short term capital gains. Short-term capital gains from shares are classified into two parts:
Short-term capital gain under Section 111A is taxed at a concessional rate of 15% with applicable cess.
Section 111A is applicable in the case of STCG on the purchase or sale of:
Exception: Transactions undertaken on an International Financial Service Center (IFSC) would be taxable at the concessional rate of 15% even though STT is not leviable.
If you are an Indian resident as per income tax and your total income after all the deductions is lower than the basic exemption limit (i.e. basic exemption limit not exhausted) then you are entitled to set off your short-term capital gains and long-term capital gains, against the shortfall in your basic exemption limit and only the balance amount will be taxed at 15%.
Ajay has a taxable salary income of only Rs 1 lakh and a short-term capital gain on the sale of equity shares of Rs 4 lakh. He also has Rs 50,000 as Income from Other Sources. Calculate STCG Tax applicable.
|Rs 1 lakhs
|Rs 4 lakhs
|Income from Other Sources
|Rs 0.5 lakhs
|Rs 5.5 lakhs
You have to add income from other sources of Rs 50,000 to the total taxable salary thereby making it Rs 1.5 Lakh. As there is a shortfall in the absorption of the basic income tax exemption limit of Ajay by Rs 1 lakh, short-term capital gain on the sale of equity can be adjusted to the extent of Rs 1 lakh.
Tax will be applicable on a short-term capital gain of Rs 3 lakh (Rs 4 lakh – Rs 1 Lakh) at a flat rate of 15%.
Points to be noted-
Income tax law does not allow any deduction under section 80C to 80U from the short term capital gains referred to section 111A. However, the investor can claim such deduction on short term capital gains other than those covered under section 111A.
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